January 24, 2002 -- Pac-West Telecomm, Inc. (Nasdaq: PACW), a provider of integrated communications services to Internet service providers (ISPs) and business customers throughout the western U.S., announced that the California Public Utilities Commission (CPUC) has ordered Verizon to pay $4 million it withheld for the delivery of Internet-bound telephone traffic to Pac-West. The CPUC called Verizon's non-payment "improper" and ordered it to pay its bill within three business days.

"Today's decision is a significant victory for Pac-West, our customers, and Internet users," said Wally Griffin, Pac-West's Chairman and Chief Executive Officer. "We're fed up with the huge incumbent telephone companies exploiting the regulatory process as a tool to impede competition. We're getting hit right and left by the legal teams of these huge incumbents in their fight against competitive entry. Because of their size and deep pockets, they are attacking the competition on every front from Washington, DC to every state legislative and regulatory body. Every new legal hurdle they create delays meaningful competition in California."

New York based Verizon Communications (NYSE: VZ) uses Pac-West's network to connect their customers to the Internet and by law owes the company a fee called reciprocal compensation. The Federal Communications Commission (FCC) has offered an alternative reciprocal compensation rate structure which Incumbent Local Exchange Carriers (ILECs) can choose to adopt upon renegotiating existing interconnection agreements with other carriers.

Verizon unilaterally adopted the FCC rate structure and began under-paying its reciprocal compensation bills beginning in June of 2001. Pac-West requested a dispute resolution with the CPUC in August 2001. In September, a neutral CPUC judge ruled in favor of Pac-West, and ordered Verizon to pay its outstanding bills. Verizon refused to "honor" the decision and filed a complaint with the CPUC, in which it argued that the judge might have been distracted and confused. Oral argument for the new complaint was held in November 2001. Today, the CPUC issued a formal ruling against Verizon.

The debate over reciprocal compensation goes back to the passage of the 1996 Telecommunications Act, during which the large incumbent local phone companies lobbied for high reciprocal compensation rates in anticipation of a significant revenue stream. As competition from smaller competitive phone companies increased, the incumbents began to oppose these payments in an effort to prevent competition. Dozens of states, two federal courts, and the FCC have all supported reciprocal compensation as the fairest means of cost recovery to encourage competition as intended in the 1996 Telecom Act.

"We're going to invest these dollars in new California infrastructure," said Griffin. According to the company, Pac-West has invested $175 million in California infrastructure since 1998.

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